A study of the existence of systematic discrimination against Chinese firms listed on SGX.

• Main Authors: Yeo, Josephine Rui Ting., Lim, Zuan Ling., Ong, Cherilyn Li Jing.
• Other Authors: Cao Yong
• Format: Final Year Project
• Language: English
• Published: 2011
• Subjects: DRNTU::Business::General::Moral and ethical aspects
• Online Access: http://hdl.handle.net/10356/43863
• Institution: Nanyang Technological University

With persistently low Price-to-Earnings (PE) ratio prevalent among Chinese firms listed on the Singapore Stock Exchange (SGX), this paper aims to investigate if any systematic discrimination against these S-chips exists. With a common set of financial ratios and through cross-sectional regression, the paper studies if there is any difference in their explanatory power on the stock returns of two different groups of SGX-listed stocks; the Chinese stock and Non-Chinese stock. Through existing literature reviews, a regression model is employed to examine the relationship between these financial ratios – Total Asset Turnover, Return on Assets, Price-to-Sales ratio, Dividend Growth Rate, Net Cash Per Share, Long-Term Debt/Equity ratio and the annualized stock returns over a 8-year period (2002 to 2009). The Corporate Governance Index (CGI) is also used in the regression against the stock returns as a composite measure of the corporate governance of Chinese firms. A total of 154 Chinese firms and 616 non-Chinese firms listed on SGX were used in this study. From our results, it is found that systematic differences do exist; particularly, investors discriminate against the Chinese firms. Through further analysis of the results for the earnings and non-earnings ratios, as well as the CGI, it is revealed that the generalization of earnings management across Chinese firms contributes to this discrimination. Unless such a stereotype is rectified, the problem of low stock returns are likely to persist among Chinese firms listed on SGX, hence decreasing SGX’s attractiveness as the preferred foreign exchange for Chinese firms. Overall, this paper has implications on SGX, investors, as well as Chinese firms seeking to list on the Singapore market.